If the eurozone thinks Greece can be blackmailed, it is wrong

http://www.theguardian.com/commentisfree/2015/jun/09/eurozone-greece-blackmail-wrong

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The never-ending Greek crisis witnessed a dramatic acceleration last week: the government submitted a list of proposals, the troika (the IMF, the European Commission and the European Central Bank) came back with a list of its own, the Greek side rejected them out of hand, a parliamentary debate followed in Athens during which the prime minister repeated the rejection, and finally Greece failed to make a scheduled payment to the IMF on 5 June, presumably bundling all its payments for the end of the month.

Related: Greece submits new reform plan amid talk of bailout extension - live updates

After five years of catastrophic failure, there is a sense that the crisis is about to reach a denouement, perhaps involving default and exit. There is frustration among the population with what is perceived as the unbending attitude of the lenders. But there is also deep concern regarding the implications of default and exit.

The proposals by the Syriza government represent a painful compromise compared to its electoral promises. It has accepted tight fiscal targets, and to achieve them it is offering to raise VAT on several goods, while also imposing a substantial tax burden on the rich, thus achieving some redistribution. It has also toned down its policies on privatisation and pensions. In return it is asking the troika for an immediate injection of liquidity, as well as for a serious commitment to reduce Greek debt and to promote long-term investment. There is hardly anything revolutionary, nor even particularly radical, in these demands.

The response of the eurozone creditors, judging by a leaked “official” document, has been ruthless. They have set fiscal targets slightly above those of Syriza, but to achieve these they are demanding a substantial increase in VAT, including a rise of 10% on electricity, thus hitting the poorest where it hurts. They are also demanding the abolition of subsidies and tax relief measures (including for farmers and poor pensioners), and pension cuts. Finally they demand an end to collective bargaining, no increase of the minimum wage and sustained privatisations.

These are familiar measures proposed by the IMF on many occasions across the world. They represent failed and outdated economic thinking, and are likely to mean low growth, high unemployment and low incomes. Even worse, the troika is making no suggestions regarding the settlement of debt and future investment.

Greece is offered only a temporary reprieve on very tough terms. It will soon have to get back to the negotiating table to deal with the longer-term issues, involving fresh loans of perhaps €40-50bn.

The Syriza government was quite right to reject these proposals and to fire a shot across the bows of the lenders by refusing to pay the IMF on 5 June. But the real question is, what is going to happen now?

It is quite apparent that the eurozone creditors have no intention of offering Syriza a deal that would allow it to claim even a smidgeon of victory. Syriza is too much of a danger for the European status quo, and it must be taken down several pegs. It will have to be made to comply with the tough austerity policies that have become entrenched in the eurozone. As far as the lenders are concerned, there is no other option for Greece.

If Syriza accepts such a deal it will be signing its own suicide note but also, and more importantly, that of the country as a whole. Greece must urgently have debt relief, a sustained investment programme, a boost of aggregate demand, redistribution of income and wealth, and profound reform of its economy, state and society. It is becoming increasingly clear that these are impossible to achieve within the eurozone, which insists on continuing with the failed policies of the past.

If Syriza accepts a deal it will be signing its own suicide note, but also that of the country as a whole

Syriza came to power promising radical change but within the confines of the eurozone. The attitude of the lenders is making it increasingly clear that these two aims are incompatible. In effect Syriza is being asked to move even further away from its programme, to accept an even more painful compromise. Such a compromise is unlikely to put Greece on the road to development at all, much less development with social justice.

The economy, meanwhile, is again moving toward recession, liquidity is extremely short, the public sector is delaying domestic payments and deposits are draining away from banks. Above all, the country cannot meet its debt payments this summer. Crisis is truly upon us.

The only political force that could lead Greece out of this quagmire remains Syriza, which still enjoys enormous popular support. If the lenders prove intransigent, the government should examine all alternative paths. Those who think the country will submit to blackmail because it does not know how to handle the alternative are wrong. Greece can and will survive.